Oil is poised for its first back-to-back weekly gain since February amid optimism around production cuts beginning to eat into a massive supply glut.
Futures in New York rose as much as 6% on Friday and are up about 20% this week. Explorers are cutting production in response to crude oil trading in the $20-a-barrel range. Noble Energy Inc. said Friday it would curtail between 5,000 and 10,000 barrels of oil a day of U.S. onshore production in May, and between 30,000 and 40,000 barrels a day in June.
As rigs shut and nationwide production lessens, signs of a demand recovery are also occurring, with drivers hitting roadways as coronavirus-led lockdowns ease.
“There are signs of life in terms of demand,” said Peter McNally, global lead for industrials, materials and energy, at Third Bridge. “There is a feeling that we are through the worst of the economic crisis and we are past this peak supply, demand imbalance. The supply outlook is heading in the right direction.”
This week’s data from the Energy Information Administration proved supportive. U.S. gasoline supplied, an indicator of consumption, rose by the most in almost two years last week and nationwide crude production declined for a fifth straight week to the lowest since July 2019.
Still, prices need to trade at a certain level in order to see the glut shrink meaningfully. U.S. benchmark crude needs to be capped at about $25 a barrel to force producers to curtail output, according to Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas SA. That price level keeps supply from overwhelming capacity at Cushing.
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— With assistance by Elizabeth Low, Paul Burkhardt, and James Thornhill
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